Good Morning!

Grain markets this morning are slightly mixed with two major events driving the complex: tomorrow’s WASDE and this past weekend’s heavy political sparring.

“Better to illuminate than merely to shine, to deliver to others contemplated truths than merely to contemplate.” – Thomas Aquinas (Italian priest and philosopher)

Heavy Political Weekend Outshining June WASDE

Grain markets this morning are slightly mixed with two major events driving the complex: tomorrow’s WASDE and this past weekend’s heavy political sparring.

Grain prices are trying to rebound from last week’s sell-off: canola prices were down more than 2% on the week, corn prices fell more than 3%, and soybean prices lost about 5%.

The Commitment of Traders report indicated on Friday, that managed money slashed their net long position on corn by 88,828 contracts, down 44% week-over-week. Translation: managed money halved their long position in corn. Hedge funds now hold a long position of 113,599 contracts.

For soybeans, hedge funds trimmed their net long position by about a third to now at nearly 73,000 contracts.

While the market is still bullish on corn prices and soybean prices respectively, those numbers pale in comparison to the political circus that was the G-7 Summit in Charlevoix, Quebec this past weekend.

As the G-7 Summit was ending, US President Donald Trump called on the countries to become a “tariff-free” trade zone. He also rated his relationship with the leaders of the other Group of Seven industrialized nations as a “10”.

Just a few hours later, Trump tweeted out to the world that he didn’t endorse the G-7 communique and called Canadian Prime Minister Justin Trudeau a liar. [1] Trump went as far as saying “Canada’s Trudeau is weaker than Democrats and Fake News.” [2] Basically, you could say the weekend ended in disarray. [3]

Volatile Times for Ag Industry in Brazil

If you can believe it, Brazilian soybean exports to Brazil totaled 9.76 million metric tonnes (MMT) in May. This accounted for 80% of the country’s total soybean shipments and was a new record for the month. It comes through as the country is facing ongoing currency pressures and working through a record 119 MMT 2017/18 harvest. But China also loves the higher protein content in soybeans from Brazil.

But recent events in Brazil will make it even harder to get a product to market. Late last week, the government established a national minimum freight rate as a potential catalyst to get truckers back on the highways.

For the agricultural industry in Brazil, this is not a good thing as it would add $30 – $40 USD /MT to the average trip.

Already a judge in northern Brazil has granted an injunction against the implementation of the new minimum rates. More legal challenges are expected. This, all while agricultural goods like soybeans, and corn (whose safrinha harvest just started), are supposed to get to market.

Ultimately, we can safely assume that geopolitical risk within Brazil is not going to go away any time soon with elections happening in October.

June 2018 WASDE Expectations

Tomorrow we get the USDA’s June installment of the WASDE report. Usually, in the June WASDE, we don’t see too much of a significant shakeup in production. That will put ending stocks, corn and soybean production in South America, and global wheat numbers the top priorities for us in this WASDE.

We gave some more in-depth expectations for our GrainCents readers in the weekly digest email (sent every Sunday morning around 8 AM EST) but here’s a quick breakdown of the expectations. In this week’s Digests for the 12 crops we cover at GrainCents, we used over 70 different charts and tables to help visualize (and make more sense) of the many moving parts to these grain markets.

According to trade estimates, for 2017/18, U.S. corn ending stocks are expected to come in at 2.166 billion bushels, down 16 million bushels (or MBU) from the May report. For the 2018/19 crop, the average estimate for American corn ending stocks is 1.663 billion, down 19 MBU from the previous report.

The average estimate for Argentine corn production is 32.5 MMT (down about 470,000 MT from May) and for 84.5 MMT in Brazil (down 2.5 MMT from last month). The reporting agency in Brazil, CONAB, is expected to put out a number that’s closer to 83 MMT this week.

Global corn ending stocks of 2017/18 are forecast to come through at 193.4 MMT. That would represent a roughly 1.5 MMT cut from last month’s number of 194.85 MMT. For the 2018/19 new year crop, the average pre-report estimate for global corn carryout is 157.56 MMT. That figure would represent a similar cut from the May estimate of 159.15 MMT.

On the soybean side of things, for 2017/18, analysts expect that the U.S ending stocks will come in at 522 MBU, down 8 MBU from the May report. For the 2018/19 crop year, the average estimate for US soybean carryout is 417 million bushels, up 2 MBU from the May report.

Thinking more global, the average pre-report estimate for 2017/18 soybean ending stocks is 91.35 MMT. For the new crop year, the average estimate sits at 86.74 MMT of soybeans. The average 2018/19 production estimate for Argentine beans 37.9 MMT (down 1.1 MMT from May’s report) and 117.43 MMT in Brazil (up 430,000 MT).

For wheat, trade expectations call for a slight uptick in the 2018/19 American wheat crop, to 1.822 Billion bushels. Of this figure, the trade is looking for 1.19 billion bushels of American winter wheat production. Projected U.S. total wheat ending stocks for the 2017/18 crop year is estimated at 1.08 billion bushels and 958 MBU for 2018/19.

Global ending stocks of 2017/18 are forecast to come through at 267 MMT in wheat. That figure is down slightly from the 270.5 MMT reported last month. For the 2018/19 new crop year then, the average pre-report estimate of global wheat carryout is 263 MMT. That figure would be a 1.33 MMT cut from last month’s estimate.

Moving forward, markets will need to see additional production cuts and some additional demand. Any bullish headline though could propel speculators to buy this dip and help grain prices rebound after an exhausting two weeks of selling.

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

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About the Author

Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace.
He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead.
In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow.
He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!).
Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

Grain markets this morning are almost all green as U.S. grain prices are seeing the benefit from a weaker U.S. Dollar, but that’s also pushing other currencies higher, including the Canadian Loonie and Brazilian Real.